Agriculture and Natural Resources

Big-Picture Impacts of Rapid Expansion in Ethanol Production

Robert Wisner, Faculty, Economics Department

Situation:

The corn-based ethanol industry is expanding very rapidly in Iowa and nationally. Corn processing for ethanol increased by 21% in 2005-06, along with an estimated 38% in 2006-07, and a projected 58% increase for the marketing year beginning September 1, 2007. Iowa is at the epicenter of the explosive growth. In the rush to build new plants, there has been a lack of information on the big-picture impacts of such a rapid surge in corn demand on agriculture as a whole and on impacted agribusinesses. This demand surge has major implications across the entire spectrum of Midwest agriculture, from plant breeding, the seed industry, and crop-related input suppliers to grain elevators, transportation firms, the feed industry, the biofuels industry, and especially the livestock and meat industries. There has been a big need for information on how much corn will be needed for the ethanol industry, how and where it can be produced, how the volume of business for associated crop industries will be affected, how much corn can realistically be expected to be available for livestock feeding, and how the total agricultural sector will be affected when a weather-related short crop occurs.

Objective:

To create broad-based decision-maker awareness across Iowa and U.S. agriculture of the major adjustments that will be needed in the next two to four years to accommodate the rapid expansion in the ethanol industry.

Activities/Responses:

A major thrust of the ISU Extension Grain Marketing program in fiscal 2007 has been to continually monitor and analyze trends in the ethanol industry, to assess the implications for crop rotations, the soybean industry, the potential impact on sensitivity of grain prices to periodic weather shocks, and to determine how much reduction in corn feeding to livestock may be needed in the future, and especially in case of major drought. This information has been made available through (1) the twice-a-month Iowa Farm Outlook newsletter, (2) more than 100 contacts with the farm press and major farm magazines, numerous contacts with major U.S. and international business news publications, approximately 880 air minutes of radio broadcasts, and national and international TV. The information also was conveyed to stake-holders through 56 meetings and seminars to a total audience of approximately 3,780 persons. The key members of the audiences included the Iowa Legislative Agriculture Committees, the Board of Directors of the Iowa Agribusiness Association, cooperative managers and board members at the annual meeting of the Iowa Institute of Cooperatives, the Iowa Department of Transportation Railroad Advisory Committee, the Iowa Ag Realtors Land Institute, and personnel from the National Pork Council, the Iowa Farm Bureau Federation, the National Dry Millers Association, and the American Farm Bureau Federation.

Impact/Outcomes:

While the full impacts of this work will not be apparent for several years, it has alerted the livestock industry, the grain industry, the railroad industry, crop farmers, and the crop input industry that large changes are ahead for Iowa and Midwest agriculture. It has given stake holders additional lead time to begin making business adjustments and altering long-term plans. It also has alerted both Iowa, federal and international policy makers of key issues that will need to be faced and dealt with in the next two to five years. Grain farmers have responded by shifting15 million acres more acres into corn than were planted last year and reducing soybean plantings by 11 million acres. Grain elevator management teams and farmers are drawing up plans to sharply increase storage, drying, receiving and other related handling facilities to accommodate a sharp increase in volume of grain harvested in the next few years. Railroads are starting the process of planning for new ethanol shipping terminals and being prepared for reduced grain export shipments. The livestock industry is examining alternatives for adjusting to a shrinking availability of corn for feed and greatly increased risk in case of a short corn crop at some future time.